MAJOR HEADLINES – PREVIOUS SESSION

US Mar. ISM Non-manufacturing out at 40.8 vs. 42.0 expected and 41.6 prior

AU ANZ Mar. Job Advertisements out at -8.5% vs. -10.4% prior

JP Feb. Leading Index out at 75.2 vs. 75.3 expected and 77.2 prior

JP Feb. Coincident Index out at 86.8 vs. 86.9 expected and 89.6 prior

THEMES TO WATCH – UPCOMING SESSION

EU ECB’s Bini Smaghi speaks (0820)

EU Euro-zone Sentix Investor Confidence Index (0830)

EU Euro-zone PPI (0900)

EU Euro-zone Retails Sales (0900)

CA Building Permits (1230)

CA Ivey PMI (1400)

US Fed’s Warsh speaks (1700)

Market Comment:

EURJPY bounces off 200-day moving average.Japan announced overnight that a new stimulus package would be revealed on Friday, worth some 2 percent of GDP, or almost ¥10 trillion. This package comes after a ¥12 trillion of other stimulus measures announced recently. The focus of the package is on relief for small businesses and a safety net for temporary workers. A number of new instruments will be added to the list of assets that the BoJ is purchasing to ease pressure on regional banks and the market can look for tonight’s BoJ announcement for further details on its expansion of non-traditional, quantitative easing policies, though the bank’s moves have been less aggressive than elsewhere considering the dire state of the Japanese economy. The market did not greet the news as JPY positive, as the dam now seems to have burst on the JPY sell-off after 100.00 was breached in USDJPY on Friday’s close. The huge sell-off in government bonds was also a big factor in pushing the JPY over the edge as well as the general environment of risk willingness. The action is getting awfully steep here in many of the JPY crosses and we have a hard time imagining that it can continue at this kind of pace without a sharp correction soon. As well, traders should note that the EURJPY cross has reached it 200-day moving average, a key milestone. Could the BoJ announcements tonight market a pivot point for the JPY sell-off, at least temporarily?

Market themes….
Risk appetite and relative competitive devaluation are still the themes this week, which may see less than normal liquidity as many are on vacation due to the upcoming Easter holiday weekend. As we have mentioned above, the moves have become a bit exaggerated here and we could see a bit of a consolidation this week on the action from last week’s weak USD and JPY moves.

Highlights of Economic data event risks this week:

Tuesday:

Australia Mar. AiG Performance of Construction Index – Building Approvals are off over 25% from a year earlier as Australia’s housing bust continues and this index is expected to show a worsening contraction in the sector

Australia RBA Cash Target – the market is very divided on whether the Bank will keep rates on hold yet again or cut by perhaps 50 basis points. Traders of both sides have marshaled comments from RBA officials to support their view. We lean a bit more to a cut than a pause considering the dire weakness and strong non-traditional measures elsewhere. A stronger currency will do the Aussie no good and a pass on a rate cut would possible send AUD sharply higher unless the RBA is lucky enough to see a swoon in risk appetite in the very near future. Either way, the outcome tonight could generate plenty of volatility.

UK Feb. Industrial and Manufacturing Production – The UK manufacturing sector is suffering along with production everywhere else as shrinking worldwide demand is fast outpacing any potential benefits to the UK manufacturing sector from the devalued sterling.

US Feb. Consumer Credit – not normally a statistic that is a market mover, but the expected negative number is interesting for the larger perspective: with underemployment in the US economy reaching a record 15+%, is the problem that not enough credit is being extended to consumers, or that consumers are jobless and drowning in debt and don’t need credit, but money? We suspect that the latter is more important than the former for the longer term. There is not easy solution to the credit problem in the US economy.

Wednesday

Japan Feb. Current Account and Trade Balance – much attention has been focused on Japan’s slide into a virtual deficit nation, though the latest JPY devaluation will offer some powerful medicine. The nation can’t and won’t tolerate the type of JPY strengthening we saw late last year and early this year, even if it sees a strong resurgence on the inevitable next round of risk aversion.

Australia Feb. Investment Lending and Value of Loans – these data points show how stable the Australian financial sector has been relative to some of its peers around the world. Still, with the economy weakening, the flow of credit should show further contraction soon.

Germany Feb. Trade Balance – shrinking rapidly and will continue to do so until economies go on a restocking binge.

Norway Mar. CPI – another country at risk of slipping into deflation. The most recent rhetoric from the Norges bank showed some saber-rattling on too much currency appreciation, so NOK bulls will need to tread carefully – even if we remain positive on the currency for the medium term.

Canada Mar. Housing Starts

US FOMC minutes – here we get the minutes from the Fed meeting, in which the Fed announced an all out war on deflation and a direct move into the territory of debt monetization.

Thursday

Australia Mar. Employment Change and Unemployment Rate – despite the relative calm in the financial sector in Australia, the real economy is beginning to lost jobs at an accelerating pace, especially due to the shock in commodities industries over the last few quarters.

Switzerland Mar. Unemployment Rate – the SNB is in an all-out war on deflation. Inflation has already turned negative and unemployment is finally beginning to creep higher.

Japan Mar. Machine Tool Orders – this data point, which represents orders for production equipment, showed a whopping -84% year-on-year contraction in February and could post a similar level for March.

Sweden Industrial Production and Orders – Sweden’s export machine is suffering tremendously in this downturn with production already off 20% from a year ago and orders down over 30%. If risk appetite turns south this week, the krona could experience another bout of weakening.

UK Mar. PPI Input/Output – UK inflation levels have remained far above the worry zone for inflation due to the pound devaluation.

UK Feb. Visible Trade Balance – the desperately weak pound has failed to positively alter the terms of trade picture for the UK – very worrying for the pound in the long run, even if the market pays little attention to this data release and the pound is doing rather well versus its European counterparts at the moment.

Germany Feb. Industrial Production – Germany is Europe’s version of Japan as this downturn continues to show that the net producing nations are now contracting faster than the net consuming nations.

Canada Mar. Unemployment Rate and Net Change in Employment – the Canadian job market is worsening almost as quickly as its US counterpart as the two economies are very much intertwined. The severity of the data will be an important input into the next BoC meeting on 21 April, in which the bank may join the devaluation parade with its own QE-like measures, despite the relatively sound Canadian financial sector.

UK BoE to Announce Rates – will the BoE make like the Fed and lower rates to zero to a quarter percent versus the current level of 0.50%? The more important question is to what degree the Bank will continue buy gilts in order to prop up the massive fiscal gap that has developed in order for the government to pay for its massive bailout measures, especially in the light of sharply rising yields last week at the long end of government bonds.

Canada Feb. International Merchandise Trade – Canada has recently become a net importer of goods for the first time in modern memory as its manufacturing sector has imploded and energy prices, particularly for Natural Gas, have collapsed. The worsening terms of trade and current/capital account developments could keep the loonie from strengthening much further versus the greenback.

US Feb. Trade Balance – the US Trade Balance has shrunk to levels not seen since 2002 with the slowdown in consumption and plummeting energy prices. The trade balance may begin to level out soon considering the relative stabilization in oil prices and the eventual need to restock shelves. This measure is more a measure of demand collapse rather than any sign of resurgent US exports.

US Weekly Initial Jobless Claims – the weekly reminder here is that we need to see the four week average of this number to begin declining sharply before we can expect and change in the momentum of the US unemployment rate.

Friday

Japan BoJ Minutes of last meeting

European and North American Markets closed for Good Friday

Chart: EURJPY
EURJPY touched its 200-day moving average overnight and looks headed for a sharp consolidation if the bearish climax reversal follows through lower. First support is the previous higher around 134.50 and then the rapidly rising 21-day moving average, currently coming in close to 130.00